Global sourcing vs local sourcing for effective supply chain
In today’s supply chain, Local sourcing transforms to global sourcing of raw materials, components, and manufacturing are the standard rather than the exception. Businesses have been developing ties with third-party suppliers from outside their nation for several years. The manufacturing of goods that contribute to global trade is dispersed across a worldwide supply chain with numerous facilities.
Global sourcing has created new supply chain management issues that may change daily or hourly. Today, it entails getting production partners up and running early to avoid shortages and demand spikes before they occur. For example, Global procurement can massively benefit the supplier from buying a bike for your kid and cheap corporate gifts to mass supply.
It might be possible to scale down production in the future if demand changes. That adaptability is challenging to achieve, so supply chain leaders must know about global conditions. Through the lens of a strategic view on worldwide sourcing, more intelligent decisions can be made at the end of international sourcing.
Sourcing strategically, with redundancies in supply, all while keeping costs down. Today’s supply chain leaders must develop a sourcing strategy that includes logistics and raw material suppliers’ contingencies. Any sourcing expert should include trade conflicts, tariffs, and embargoes into their worldwide purchasing plan.
While the COVID-19 epidemic has emphasized the need for effective supply chain management to keep global trade flowing, it has also expedited the widespread adoption of best practices critical to a sustainable supply chain. As we’ve seen from supply chain leaders such as Alibaba and Amazon, companies that ignore global sourcing risk being at a disadvantage to companies that prioritize it.
Table of Contents
What is global sourcing?
Global sourcing is one of the most crucial responsibilities of running a supply chain. It’s critical to have a worldwide supply chain if you want one that spans the globe. This differs from international sourcing, which is concerned with purchasing and managing a global supply chain between just two countries. For example, if a carmaker in Michigan buys floor mats from Canada but manufactures the rest of its components domestically, it is an international supply chain. Global sourcing is different; this is a complex supply chain with a global emphasis. The automaker obtains brakes from China, engine parts from Japan, and some component manufacturing in Mexico.
The ability to operate across several borders is critical to achieving a profit margin that will allow the firm to succeed. Global sourcing is essential for supply chain management since it will enable firms to increase operational efficiency and achieve healthy margins, making more money and investing in expansion. It is worth restating that there are two types of sourcing: short-term and long-term. The total value of the supply chain (not just piece price) is determined by sourcing activities. Supply chain executives must consider several variables to establish a worldwide purchase procedure.
For example, strategic sourcing decisions consider logistical expenses and delivery time against raw material quality and price to develop the best sourcing plan. This approach must be consistent and supportive of the manufacturing operational strategy and the end-to-end supply chain plan. Because of the danger of supply chain disruption, sourcing executives must also establish backup sourcing and logistics alternatives. We’ve seen the consequences and hazards of significant supply chain disruption in 2020, and sourcing teams are now considering risk differently as the world tries to deal with the health crisis.
A company’s risk factors, operational needs, and sales goals must be considered when developing a worldwide sourcing strategy. Modern technology is required to tackle complex business issues. Today’s supply chain managers can’t create and maintain a worldwide supply chain with only spreadsheets. Innovative global sourcing techniques are developed possibly with cutting-edge technologies like artificial intelligence (AI) and big data.
Pros and Cons of Global Sourcing
The main advantage of global sourcing is cost savings. International sourcing enables many foreign manufacturers to offer their services at very competitive prices, especially in regions where products are typically produced at low cost. Lower manufacturing costs will allow businesses to buy goods in bulk at lower prices, ideal for startups and businesses with limited budgets.
On a global supply chain, you’ll find that low cost is just one of the many benefits you get when sourcing products internationally. Let’s take a look at some of the additional benefits you can enjoy sourcing your products from overseas manufacturers.
Advantages of Global Sourcing:
- You can get a wider variety of products than domestic.
- Get unique, hard-to-find products that can attract more customers.
- Having access to suppliers all over the world means you have more choices than you would at home.
- Overseas suppliers are often more willing to work with small businesses or produce small batches of products.
- You can increase your total supply capacity by using multiple suppliers globally or in different regions, which also protects you from supply chain problems caused by natural disasters.
- You can acquire resources, materials or skills not found at home, such as the ability to produce specific types of products.
- Sourcing overseas is a learning experience that can provide a stepping stone to developing new markets overseas.
- Overseas manufacturers often have significant cost savings compared to domestic sourcing.
While the benefits are great, there are pros and cons to everything in life; this also applies to global sourcing. Here are some common pitfalls that can occur in international sourcing.
Disadvantages of Global Sourcing:
- You may encounter different industrial or technical standards, which may or may not be the requirements of your home country.
- Some restrictions can affect imports and exports on either end of the transaction, such as quotas and tariffs.
- Documentation requirements for cross-border processes can be time-consuming and complex.
- Currency exchange rates fluctuate.
- Long time shipping time
What you should know about importing global components into your supply chain
Large organizations are diversifying and improving sourcing procedures beyond local providers to meet the growing need driven by e-commerce and consumer spending trends. Global sourcing of raw materials and products is a top priority to ease supply increases. But there are specific perils associated with this approach.
Another supplier relationship can be used to meet the demand when a trade barrier rises in one country or a natural disaster wreaks havoc on a supplier’s operations. Global supply chain management ensures that manufacturing and delivery remain on time and track. Supply chain executives can better assess these global sourcing risks by using some of the insights from the Global Supply Chain Institution’s whitepaper, EPIC Global Supply Chain Risk Assessment. The whitepaper provides a framework for evaluating nations based on Economy, Politics, Infrastructure, and Competence (EPIC). The paper assists supply chain executives gather information regarding the risks in ten global regions and creating a sourcing plan that maximizes the benefits of worldwide sourcing while minimizing the dangers.
Global supply chains also help to strengthen trade ties between nations that exchange high amounts of raw materials. A country’s significant trade component might be a source of beneficial pressure against political change, leading to a trade embargo if it is mainly dependent on international commerce. Cross-border supply chains are one of the many reasons why governments desire to maintain good ties, minimize tension, and raise tax money.
Sourcing products worldwide also allows sourcing experts to get the best quality raw materials at the lowest rates while maintaining optimal operational efficiency. This results in the most effective overall value for the business. Global supply chain management may leverage competent local personnel to foster product innovation and delivery. By purchasing commodities from all across the world, you can obtain a cost advantage over your competition. Global sourcing methods may provide your firm with a competitive edge. The global supply chain raises people’s earnings in low-wage nations by using the workers of international trading partners.
Trends in Global Supply chain sourcing
COVID-19 is the most important motivation for supply chain management reform globally. The ongoing risk posed by COVID-19 is being addressed, focusing on improving monitoring and mitigation capabilities. Some countries have appeared to be free of the disease, while others have shown significant upheaval due to partial and complete shutdowns over time.
The pandemic resulted in widespread transportation disruptions. Academics from the Global Supply Chain Institute at the University of Tennessee, Knoxville’s Haslam School of Business have advised supply chain executives to prepare for some level of disruption in the foreseeable future while assessing the current supply chain risk. We’re moving toward more agile supply chains that can easily adjust to emerging supply chain problems. The sourcing function will play an important role here.
Other essential supply chain developments to keep an eye on including a continued focus on environmentally responsible supply chains that minimize the consequences of raw and processed materials. In addition, businesses are putting greater weight on sourcing diversity to assist communities that global procurement operations in the past have neglected. Leaders of tomorrow must place an ethical procurement process at the forefront of their purchasing strategy from both a human and ecological standpoint.
The last item is not as much of a trend as a welcome revelation: the increasing recognition of how critical supply chain and procurement are as an industry. Today’s global supply chain management problems have highlighted the procurement team’s importance.
When it comes to finding a supplier or manufacturer, you can source from a local company or go global. Both approaches have pros and cons, so to help you understand the key differences between the two, we’ll explain why you might want to keep something local and when to take advantage of a global supply chain.
What is local sourcing?
Local sourcing refers to sourcing products or materials from manufacturers in the home country. Instead of going to international suppliers, you choose to buy from local manufacturers.
Shopping locally often comes at a price. Choosing to invest in a manufacturer in your home country may be more expensive than if you invest internationally. However, local sourcing may also be easier and faster. If you need a quick turnaround, it might make sense to source from a local supplier who can make the product and deliver it within a certain amount of time, rather than worrying about shipping time.
Pros and Cons of Local Sourcing
Finding a local supplier can help your business save time and money. Here are some of the top reasons why you might consider sourcing locally instead of an international manufacturer.
The advantages of local sourcing.
- Local sourcing is great for PR, it allows you to demonstrate your investment in your local community.
- This is great for local suppliers who will benefit from serving and proud of the local community.
- Local sourcing enables you to see exactly what you are paying for as you are able to travel to suppliers for development, management and site inspection purposes.
- Sourcing specialty products from local suppliers becomes much easier as you can visit them regularly to explain your requirements face-to-face.
- Shorten supply chains, which may (if lucky) lead to greater predictability of lead times.
There is an argument that more businesses should support their local economies by sourcing products and services from local manufacturers, however, the reality is that this is not always possible. Each country has its own resources and expertise. It is important to source products from high-quality and reliable manufacturers to progress in business even if they are overseas. When your country is not as skilled in developing the products your business needs, trying to source locally puts you at a disadvantage and leads to problems along the way.
While local sourcing is great for public relations, here are some of the main reasons why international sourcing might be the way to go.
Disadvantages of local sourcing.
- Close ties with local suppliers can lead to ethical issues when selecting suppliers.
- If you’re terminating your contract with a local supplier, it could generate bad publicity locally.
- You may not be able to find quality products in your own country.
- Economic impacts in your home country may affect deliveries and supply chains.
- You may develop resistance to change, especially when you need something innovative and new.
- The suppliers you choose may depend on you as their main source of income.
For B2B Buyer: Supplyia.com is your one-stop sourcing to delivery solution
Supplyia is a super-growth China product and dropshipping sourcing company. We not even only handle Sourcing, also assist with international transport and 3PL. We are one of the most professional Sourcing and dropshipping fulfillment partners in China, proven by our ability to focus on our customers’ needs while staying highly competitive. During the past years, the products we sourced have been distributed to over 60 countries and regions by the thousands, and we still continue to offer that same level of service today. We look forward to cooperating with you and helping your business take off.
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Rather than spend time on local sourcing with emailing factories in your home country and attempting to get in touch with a manufacturer overseas, head over to supplyia.com now to help you find a reliable, high-quality manufacturer that can offer you affordable bulk orders.
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